Philippe Spicher describes what the SiRi Group is doing to research and evaluate companies' social and environmental records

Sustainable investing has become a worldwide phenomenon over the past decade. Increasingly, international money managers and investors need high-quality, reliable information on the social and environmental records of the largest publicly traded corporations in the world. Their clients are demanding information on issues as diverse and complex as energy conservation programmes, policies and practices in the supply chain, employee training, or women in the workplace. They not only want coverage of more issues but greater depth of detail, the ability to compare and contrast corporate records and a sense of managements' commitment to innovation and change.

Recognising this need, 12 leading social research and rating organisations decided to join to form the SiRi Group. This provides a single source for relevant information, using a rating system to assess the environmental and social performance of companies.

Research focus
In selecting the areas on which to focus its research, and the specific items within each area, the SiRi Group took into account:

  • issues that social and environmental investors find of crucial importance today
  • issues that corporations will need to address tomorrow to satisfy the increasingly complex set of expectations that society places on them.

    The group focuses its research on six primary areas of vital interest. These are: community, corporate governance, customers, employees, suppliers and human rights and the environment. These issues correspond largely to the stakeholders traditionally identified as participants in the stakeholder model of corporations. They embrace the range of possible relationships between a company, its partners, society as a whole and the natural environment.

    The environmental and social analysis of a company is often perceived to be an impact analysis. However, adopting this approach would be too reductive. In reality, the social or environmental impact of a company can, on the one hand, be the result of a process (or absence of a process) within the company. On the other hand, the impact can be the result of multiple causes with which the company's operations are not necessarily connected. This means that companies are not truly comparable if judged solely on the basis of their environmental or social impact.

    For these reasons, the group focuses its research on four primary aspects of a company's record:

  • public reporting
  • principles and policies
  • management systems
  • operational results.

    Public reporting - Public reporting is extremely important to those engaged in social investing, since it provides a solid base for research and decision making. Unless such corporate information is reported consistently and regularly, an efficient social investment marketplace is difficult to achieve. In contrast to their financial reporting, companies are under (virtually) no obligation with regard to social or environmental reporting, and can therefore cover up certain negative aspects relatively easily.

    The company's public reporting fulfils three functions: it gives the public an account of the company's activities and commitments in respect of environmental and social issues, it defends the company's image in the eyes of this same public, and it is aimed at the company's employees and subsidiaries to raise awareness and provide instruction and information.

    Principles and policies - Strategy is a company's formulation of its values, guiding principles, policies, commitments or general objectives where the areas of corporate social responsibility are concerned. Although the existence of a statement at the strategic level is no guarantee that procedures will be implemented or results obtained, it is a fact that companies rarely formulate an environmental or social strategy purely for the purposes of cultivating an image.

    A policy, inasmuch as it is published, represents more than a declaration of intent. Within the company, it sends a clear signal to employees and managers. Externally, it invites the public to take note of the firm's views on the themes in question, thereby compromising its position if it should fail to live up to those stated principles.

    Management systems - The management level covers the range of measures and procedures designed to implement the strategic principles and to provide for monitoring operational results. Formal policy statements embody management's commitment to progress and formal management systems institutionalise that commitment. The corporate effort required to create credible policies and management systems is substantial, but once implemented these help assure a long-term institutional commitment to addressing the issues.

    Operational results - The operational results describe a company's impact in terms of a particular subject area. This is certainly the level which the public finds most interesting, and it naturally forms part of the research process. Policies and systems may be praiseworthy in themselves, but do not necessarily guarantee that corporations have successfully implemented their programmes. It is therefore crucial to identify and analyse indicators of successfully implemented programmes. This data can serve as a means of measuring the effectiveness of policies and practices. It can also provide indicators of the impact corporations have on the environment, on stakeholders and on society generally. Although often difficult to obtain and to interpret, such data is an important tool for a well-balanced and accurate assessment of a corporation's impact on society.

    SiRi presents the outcome of its research in the standard SiRi Global Profile. This comprises six main sections divided into four sub-sections (public reporting, principles and policies, management systems and key data). The profile also includes a general information section and a section related to controversial business activities (exclusionary screens).

    To assure consistency and accuracy in the profiles, the SiRi Group Research Committee has prepared a 100-page set of data entry guidelines that the research analysts from each group member follow. The committee also makes sure that all members conform to certain research methodologies and procedures, and is responsible for maintaining guidelines to assist the member organisations to implement the standards.

    Rating companies
    The group uses a rating system developed by Centre Info. This has a twofold objective: to describe the behaviour and performance of companies in the environmental and social fields (in the widest sense), and to evaluate this performance.

    This system is based on the six main areas, themselves divided into the four different levels, forming the SiRi Global Profile. Each level, within an area, represents a distinct evaluation criterion. For each criterion, a group of selected indicators allows the researcher to establish the characteristics of the company being analysed and to make an assessment. The assessments relating to specific criteria can be aggregated, to produce either a valuation by issue, or by level, or to give an overall evaluation.

    The nature of the indicators can be quantitative (rates of absenteeism, tonnes of CO2 emissions), qualitative (hierarchical level of the officer with environmental responsibility, marketing and advertising) or boolean (existence of a code of conduct). Overall, more than 200 indicators are used.

    This method of analysis and evaluation is not designed to judge companies. Instead it highlights their strengths and weaknesses in the different areas as systematically and objectively as possible. This allows users, especially investors, to choose on a properly informed basis.

    Philippe Spicher is CEO of Centre Info SA, E-mail:

    Centre Info SA
    Established in 1990, Centre Info provides corporate research, country sustainability research, and consulting services to clients interested in corporate social responsibility. Its clients include institutional investors, pension funds and financial institutions that integrate social and environmental criteria in their investment choices. Centre Info is also the first institution in Switzerland that provides corporate governance services.

    SiRi Group
    The Sustainable Investment Research International (SiRi) Group is a coalition of 12 research organisations devoted to the global advancement of social investing. SiRi Group members provide a wide range of social investment research products and services to financial professionals in major markets. Each member covers its own national market and provides services to the financial community there.

    With social investing gaining increasing acceptance throughout the financial community, the need for support services has reached critical levels. The SiRi Group provides such services through research organisations with a combined total of over 100 researchers on the ground on each country, in contact with local corporations and attuned to national issues and cultures.

    SiRi Group members are:

    Arese, France

    Avanzi, Italy

    Caring Company, Sweden

    Centre Info, Switzerland

    Fundación Ecologia y Desarrollo, Spain

    KLD, United States

    MJRA, Canada

    PIRC, United Kingdom

    Scoris, Germany

    Siris, Australia

    Stock at Stake, Belgium

    Triodos research, The Netherlands